New Delhi, India — China and India are the world’s largest countries in terms of population. Both are enjoying a high rate of economic growth. But that is where the similarity ends. Very farsightedly, China is planning for the next 50 or 100 years, while India is busy savoring the moment.China exports goods worth US$700 billion every year, giving it a whopping trade surplus of US$100 billion. China is no longer interested in merely being the United States’ sweatshop, however. It has developed geopolitical ambitions and has the wherewithal to achieve them. Not being a democracy is a great help. The transition cost is low. China is fond of giving the analogy of social suffering in England when it made the transition from a traditional to industrial economy — and China has the advantage of not having a Charles Dickens around. If its totalitarianism can hold, China will achieve its goals.

A few years ago the Chinese deputy minister of science visited India’s National Institute of Science, Technology and Development Studies, of which I was then the director. During conversations on low wages in China he made a significant point, to the effect that, since China was not in a position to compete with the West on technologies of today, it was making money from technologies of yesterday to invest in those of the future.

In contrast, India is happy playing a marginal role in the West’s technologies of today. While China is manufacturing goods at low cost and selling them at a profit to the West, India is training its top-class manpower at high cost and supplying it to the West at low cost. The most significant aspect of its flaunted software-driven services sector is its underemployment. A large number of young men and women are working beneath their intellect, training and skills for the sake of a lowly monthly salary of a few hundred dollars, which translates into a neat rupee packet.

Although India likes to imagine it has become an IT hub, facts and figures do not support this claim. India has 15 percent of the world’s population. It is only in poverty-related indices that India’s share is higher than 15 percent. In all indices related to education, industry or technology, India does not have a share larger than 2-3 percent.

In 2006, India earned a gross amount of US$22 billion from software-related exports. This is a small figure. First, it is a gross figure. From this we should deduct the amount spent on importing computer hardware and branded software to arrive at the net figure – which is not known, but could be as low as half the gross figure. (My guess is that India’s computer-related imports in all sectors are more than its exports.)

In contrast to this US$22 billion, India earned US$24 billion from money sent home by Indians living and working abroad — two-thirds of which came from the United States and the Gulf countries. This would constitute most of the earnings of semi-skilled or unskilled workers abroad and a part of what Indian professionals earn in the United States.

China earned about US$50 billion from exporting low-tech stuff like toys and sports goods to the United States. The point here is that India’s highly skilled persons are doing low-tech work at salaries that are low by international standards.

China seems to be saying to the West: “This is a beautiful house you are living in. Get out because I want to live here.”

India seems to be saying: “You have a lovely house here. Please permit me to stay in the outhouse.”

A nation can be accurately judged by what it considers to be worthy of celebration. Upper India has been rather hasty in trumpeting its success on the IT front.

Given our felicity with the English language, our propensity to appropriate clever phrases from the lexicons of others, and our willingness to suspend our own judgment so as to savour motivated praise showered by the outsiders, we have persuaded ourselves that India is an IT superpower, that Bangalore is our silicon valley, India is now a world hotspot for innovation, and the like.

Facts and figures do not support this picture. Countries become rich not from wages but from royalties. India is still in the wage stage. It has an opportunity to graduate to the royalty stage. But this opportunity is in immediate danger of being frittered away. India still has miles to go. If it starts celebrating prematurely, it will never arrive.

India’s share in the world software market is a paltry two per cent. In the fiscal year 2006, India’s software-related exports stood at $ 24.2 billion. This is a gross figure. To obtain the net figure we must subtract from it the amount expended on importing the required computer hardware and branded software.

Unfortunately this latter figure is not publicly known. It could be as high as half the gross figure. My own impression is that the total Indian computer – related imports (for all sectors) exceed the corresponding exports.

A major source of foreign exchange for India is the money sent back home by Indians living or working abroad. For the fiscal year 2006 these inward remittances stood at $24.6 billion. Two thirds of this came from two sources: USA (44%) and the Gulf (24%).

The fact that a fraction of the savings of Indians employed abroad equals India’s gross software export earning brings home a point that is often ignored. Much of India’s software manpower is under-employed.

In the calendar year 2005, China exported to USA toys, games and sports equipment worth $19 billion; furniture worth $17 billion; and footwear and parts worth $12 billion. Thus China earned about $48 billion from the labours of its relatively low-skilled work force, while India employed its top brains to bring in no more than $24 billion.

Much of the foreign praise for the so-called Indian IT prowess stems not because of the cost advantage India offers but because India makes available highly skilled people for doing stupid repetitive work at a couple of hundreds of dollars a month. Many analysts have used the term cyber-coolie to describe the phenomenon.

My own preference is for the term techno-baboo or cyber-baboo (colonial-era spellings being advisedly used). Coolie is a degrading term; the coolie can retaliate. The British in South Africa called Mahatma Gandhi a coolie, and see what happened to the empire! But baboo is a soothing term. A baboo can remain a baboo for ever and feel proud of the fact.

About 200 global companies have opened their research and development centres in India. Not withstanding the composite nomenclature, these centres are for further development of original research done in the West rather than for original research itself. In any case even if the authors of the patents being filed from these centres are Indians, the patents are not owned by them but by the parent company.

If the parent companies were to set these centres up in their own countries and hire these very Indians, their salary bill will go up about eight times. The money Indians will be sending back home will far exceed the salaries they are now getting.

We should now wean our upper-end IT experts away from employment and convert them into entrepreneurs. This would require a strategy and more importantly a change in the national mindset. As a society, we are afraid of failure. We do not want to try lest we fail.

We content ourselves with letting others take the initiative and feel happy when a peripheral role assigned to us. As Kiran Majumdar is fond of pointing out, nothing succeeds like failure. People should be encouraged to try and fail so that they themselves or others can build on their failure and succeed.

India should set up an IT Entrepreneur Fund. We should encourage, or rather tempt, professionals currently employed in India or abroad to set up eventually royalty-yielding companies. For this not only capital but also small pieces of land at concessional rates should be provided.

SOME years ago, when the Internet was still predominantly an American phenomenon, an American astronomer at an international conference, enumerated its three biggest beneficiaries. At the first position were the Ph.D. students for whom the Internet was a vast improvement over the classical channels of academic communication. The second position was occupied by the supermarket chain Wal-Mart, whose computer-assisted salespersons could keep track of the movement of the goods and help bring down inventory and procurement costs. The third was a group for which the Internet offered new opportunities; it comprised child abusers!

It is a measure of the computer’s versatility that it could be enlisted as an ally by a wide variety of users, ranging from a Ph.D student to a criminal. The computer age is barely half-a-century old. It began in 1946 in the USA with the switching on of the world’s first general purpose electronic computer called Electronic Numerical. Integrator And Calculator (ENIAC). The machine was as unwieldy as its name; it employed some 18,000 vacuum tubes and weighed a hefty 30 tons. Still, it demonstrated that electronic computing circuitry could actually work. With permissible exaggeration, its success has been called America’s second revolution.

Subsequent history of the computer has been fashioned by three major developments. The first is the invention, in 1971, of the microprocessor, which is an integrated circuit (or a chip) containing the entire central processing unit of a computer. The microprocessor launched a million personal computers and workstations. These computers, in turn, could be interconnected via the Internet, introduced in 1973. The Internet is a decentralised-by-design, inherently anarchic, global network of cables and otherwise-independent computers, which can send packets of information from one computer to another till they reach their destination. The way it is designed, neither can the computer connectivity be thwarted nor the Internet contents censored.

The Internet owes its vitality and mass appeal to the World Wide Web, invented in 1990. The Net links the computers; the Web unites them. All information that is available online (printed word, pictures, moving images, sound and, futuristically, whatever can be expressed in terms of the digits zero and one) is perceived by the Web as a single, hyper-linked document which in turn is made available to each computer for perusal and interaction. Thanks to the Web, and the browsers (such as Microsoft Internet Explorer and Netscape Navigation) introduced into the market in 1993, the Net is now a multimedia vehicle for research, business, experimentation and fun.

Fun is the last thing IT pioneers would have associated with it. Both, the computer and the Internet are children of fear. The ENIAC began as a secret World War II project, whereas the Internet was started so that the communication network would withstand a nuclear attack. The Web had sedate origins; it was invented as a research aid for scientists at CERN. (The French acronym denotes European Centre for Nuclear Research, Geneva) Interestingly, the official publication, Highlights of CERN 1949-1994, makes no mention of the Web. This omission should not cause much surprise. A development becomes a breakthrough only by transcending its immediate context. Since we are all embedded in our own context, it is not always possible to say whether the context would be transcended and if so how. That is why history records many a forecast, which were made with great fanfare but now look foolish.

One of the technological forecasts about computers that has held its ground so far is Moore’s law, named after Gordon Moore, the co-founder of Intel Corporation. First enunciated in 1965, the law in its present form predicts the doubling of a chip’s processing power every 18 months. For the last 30 years, computers have been dutifully living up to Moore’s law, becoming in the process increasingly more powerful and faster. (Moore’s law is expected to hold for another 10 years). Remarkably, the fall in the computer price has been even more spectacular than the rise in power. It is this combination of high sophistication and low price that has enabled the computer to reach out to the whole world.

It is however only the application part of the IT that has become broad-based, not the manufacture part. Making of computers remains a highly specialised, geographically restricted activity. But computer is no ordinary machine; it responds to human command via software, which is a program that translates the system of human logic into a set of electromagnetic impulses. Software economics cocks a snook at the received wisdom of traditional economy. Software brings human intellect and innovation centre stage. It is possible, today like never before, to convert (mental) labour into capital without requiring capital to begin with. A material good once sold belongs to the buyer. Its duplication requires material and extra expenditure. In contrast, a software product can be duplicated at practically no cost, and can be sold again and again, while still remaining the property of the seller. The premier role of intellect in the new economy can be gauged from the fact that computer hackers, though branded criminals, are often hired as consultants by mainstream organisations, including the government. (May be, India will be deemed to have come of software age when it produces a world-class hacker!)

In computer software India seems to have discovered its true calling, even if the inspiration has been missing. It is probably not entirely irrelevant to note that the term algorithm, an essential part of computers, has an Indian connection. It is derived from at Khwarizmi, a 10th century Central Asian astronomer whose derivative work in translation introduced Europe to the Indian numerals.

Software as a commodity was launched in the mid-60s when IBM, farsightedly, started charging its computer customers separately for the software supplied. Ten years later, in 1974, India made entry into the world of software export, when Tata Consultancy Services solicited and obtained a small programming contract, of US $2.5 m from Burroughs, the then second largest American hardware company. Since the contract involved merely sending out Indian labour abroad, the government machinery did not come in the way. From these modest beginnings, India has come a long way. Today (1999-2000) India’s gross software export revenue stands at $4 b, accounting for as much as 25 per cent of all Indian exports. This high figure is more a reflection on the weakness of the general export effort rather a measure of the strength of the software export, which is a mousy 1.5 per cent of the global market. It should also be noted that the figures quoted here and elsewhere are the gross figures. A more meaningful figure, which is not furnished, is the net revenue obtained by deducting from the gross the concomitant hard-currency expenses incurred on import of hardware and software and on sending software workers abroad. Net revenue is estimated to be about 40 per cent lower than the gross.

The hype and the excitement built around the Indian software enterprise by the Indian players and their foreign cheerleaders cannot hide the rather obvious fact that the Indian IT, while sucking in all available talent, is doing low-calibre work at low rates. The real intellectual challenge as well as profit lies in developing branded products, which can be sold to thousands of customers in the first place, and then again and again after upgradation and enhancement. India has been earning its pennies not by developing products but by helping others develop theirs. If branded products are property, India’s export of labour and services is equivalent of bricklaying, a low-paid dead-end.

Products account for a mere 8 per cent of India’s software export revenue (SER); the remaining 92 per cent comes from work done on-side (58 per cent) and off-shore, that is, in India (34 per cent). The peripherality of the Indian effort can be seen in the terminology itself. Both, on-side and off-shore, are location-specific. If the work was worthwhile it would have mattered where it was done. Onsite work is done on contract at the client’s site under his supervision, by Indian labour sent out specifically for the purpose. It involves writing and testing of software already analysed and designed. ‘‘It does not rely on creativity, organisational understanding, or consultation with end users.’’ As we have already seen, India began its tryst with software through onsite work. In 1988 onsite work accounted for as much as 90 per cent of India’s SER. Since then, India has moved towards the somewhat more respectable, offshore work, gushingly described by Nasscom:

‘‘Even if a client is situated 10,000 miles away, he or she can still monitor the software development on a minute-to-minute basis, ensure quality checks, communicate with the programmers as if they were just next door, and still get efficient software developed, all at immense savings of both time and costs.’’

India has so far been focusing on what we may call soft software. It should now focus on hard software. Even more importantly it should look ahead.

Without begrudging India’s success on the software front so far, one must warn against long-term dangers. Hardware developments (Moore’s law) in which India anyway has no role will be over in 10 years. Software development would probably reach a plateau in 20-30 years’ time. After that, IT will not be a kalpa-vriksha, but merely a tool, an aid in other industries. While making the software hay while the IT sun shines, India should recognise that the next generation would benefit only if IT can be integrated into the mainstream industry.

In mythology, Lord Ganesha is associated with mouse. We can identify the mouse with the IT, and Ganesha with the traditional economy. If the new economy mouse is to be of use it must serve the Ganesha of traditional agriculture and manufacture.